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Modern Art: A new way billionaires use to evade taxes

Benjamin Franklin once said, “In this world, nothing can be said to be certain, except death and taxes”.

Unfortunately, the quote’s value has slowly begun to erode. While the commoners have no choice but to stick to their paychecks and small investments, the ones who hold assets with monstrous economic value are constantly taxed on a larger scale. Let me put it this way: If the average U.S citizen pays 30% income tax, most billionaires should be paying at least 50% in federal income tax. However, as the number of billionaires and millionaires increases, more tax loopholes are unearthed. Now, you must be thinking that most assets are already taxed and those that are ignored, barely have any growth potential. After all, the only investments floating around are none other than real estate and stocks, which can easily be taxed by the government. Even commodities like Bitcoin are under the watch of the U.S government! 

The solution

The answer lies in the homes of painters and billionaires alike; Modern Art!

It makes work unbelievably simple for billionaires. You can transport it without inspection and easily store it in homes without being questioned. It can make millions for you with the help of incredible sales agents and auction placements. 

 

Although sales tax is an exclusion, due to the extreme volatility and incalculable economic value, the government has no justifiable reason to tax the asset. And because its price depends on each buyer, it also abides by the greater fool theory.

Similarly, this works for digital art too! I’ve explained the world of digital art in my blog NFTs: Investment opportunity and the hype, which is another way to evade taxes. But wait, even watches, jewelry, and precious stones like rubies, are coined as collectibles and are taxed at 28.5% for capital gains.

If that’s the case, then why isn’t Modern Art taxed for the same reason? Well, Modern Art is taxed for capital gains, but it can easily be avoided by using one simple method.

Have a look at what our friends at Groco have mentioned in their website: 

They are known as 1031 exchanges and this is how they work. Many wealthy art collectors can, and do, save millions in taxes by essentially rolling over their profits from selling their collection pieces into buying more art. As the price of high-end artwork continues to rise, many collectors are taking advantage of this opportunity. Instead of paying millions of taxes on their proceeds, collectors turn around and put the money towards adding to their collection.

While some lawmakers frown on the practice, it is perfectly legal and allows art investors to defer taxes on their income from selling art. Many art collectors have found it to be an excellent way to extend the value of their art holdings, while at the same time avoiding letting millions get sucked away by the government.

 

How art pieces are artificially grown in value

Modern Art and real estate have day and night differences. However, there is one aspect that remains the same!

Suppose you live in a neighborhood of 10 houses, and your house, in particular, is worth $400,000. Now 4 out of the others sell their homes for $600,000. So automatically your house is worth more than its initial value; not $600,000 but at least $100,000 more. The same works with Modern Art!

Here’s Terry McKenna from Quora to provide a wonderful example. He says that:

A more typical example of using the art world is when a collector has a collection of similar pieces – so a group of works by one artist. He sells one of them at a high price (maybe the best piece). Then he get an appraisal of the others that is influenced by the recent sale – and this new value is far above that the works were purchased for.

Then the owner donates the entire group to a museum and declares the value of the gift at then new value.

However, the process of evading taxes using Modern Art is not as simple as it seems.

Everything, from transportation, hideouts/museums, and selling, all are a huge part of the game. But I don’t want to go off-topic, so I’ll directly skip to the selling part.

Auctions are your best bet

Art isn’t recognized by everyone, and not everyone is willing to pay top dollar for it. Therefore, you have to find the best place to sell it.

In my opinion, auctions are your best bet for selling art that you’ve artificially grown in value. Auctions are the best for this because people are willing to pay more while observing others’ bids; they want to satisfy their ego, which leads to poor financial decisions. As a result, the price of your artwork skyrockets to its maximum potential. 

 

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If you wish to know more about Modern Art, I recommend reading Dark Side of the Boom: The Excesses of the Art Market in the 21st Century 

How is Benjamin Franklin’s quote losing its value?

Benjamin Franklin once said, “In this world, nothing can be said to be certain, except death and taxes''. Unfortunately, the quote’s value has slowly begun to erode. While the commoners have no choice but to stick to their paychecks and small investments, the ones who hold assets with monstrous economic value are constantly taxed on a larger scale. However, as the number of billionaires and millionaires increases, more tax loopholes are unearthed.

How are art pieces artificially grown in value?

Modern Art and real estate have day and night differences. However, there is one aspect that remains the same! Suppose you live in a neighbourhood of 10 houses, and your house in particular is worth $400,000. Now 4 out of the others sell their homes for $600,000. So automatically your house is worth more than its initial value; not $600,000 but at least $100,000 more. The same works with Modern Art!

Why are auctions the best way to sell your artwork?

In my opinion, auctions are your best bet for selling art that you’ve artificially grown in value. Auctions are the best for this, because people are willing to pay more while observing others' bids; they want to satisfy their ego, which leads to poor financial decisions. In this way, the price of your artwork skyrockets to its maximum potential.

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